Kullar v. Foot Locker generating more precedent, this time on a disqualification issue

So, I'm back after a vacation, and just in time.  Luckily, nothing at all happened while I was gone.  Today, however, we receive a new nugget of precedent from one of those cases that keeps on giving.  In Kullar v. Foot Locker Retail, Inc. (January 18, 2011), the Court of Appeal (First Appellate District, Division Three) reviewed a denial of a motion to disqualify counsel representing the objectors to a proposed class action settlement in Kullar.  If this doesn't ring a bell for you, let me recap.  Kullar (the 2008 opinion: Kullar v. Foot Locker Retail, Inc., 168 Cal. App. 4th 116 (2008)) reversed an order granting approval to a proposed class action settlement after concluding that the information provided to the trial court was insufficient to permit the court to conclude that the settlement was fair, adequate and reasonable.

How does this lead to a motion to disqualify?  Glad you asked.  The Court sums up as well as I could the procedural maneuvering leading to the motion to disqualify:

Prior to the trial court's approval of the settlement in the Kullar action (Kullar v. Footlocker, No. CGC-05-447044 (Kullar)), Echeverria, represented by the same attorneys, had filed a partially overlapping putative class action against Foot Locker and others in the Alameda County Superior Court (Echeverria v. Footlocker, No. RG07317036 (Echeverria I)). Because of the pendency of the settlement in the Kullar action, the Alameda court entered an order staying Echeverria I, which remained in effect through the pendency of the Kullar appeal. On April 15, 2009, one month after issuance of the remittitur in Kullar, Echeverria and the two other objectors represented by Q&W filed an action in the San Francisco Superior Court, where Kullar was pending, asserting the same claims as were alleged in the stayed Alameda action (Echeverria v. Footlocker, No. CGC-09-487345 (Echeverria II)). Based on the pendency of identical claims in Echeverria I, the San Francisco court on July 29, 2009, stayed proceedings in Echeverria II. In subsequent proceedings in Kullar, the court considered the additional showing made to establish the fairness of the proposed settlement, the three objectors' renewed objections to settlement approval, and on October 22, 2009, the court again granted final approval of the class settlement. Echeverria dismissed the Alameda action and on November 17, 2009, the San Francisco court lifted the stay in Echeverria II.

Slip op., at 2-3.  The Court then describes the motion to disqualify filed by Foot Locker, which argued that representation of objectors on the one hand and potential class members on the other created a conflict.  The trial court rejected that argument as did the Court of Appeal.  I don't find the outcome surprising.  But the opinion does offer some interesting comments, where the Court briefly discusses the obligations of counsel to putative class members prior to certification:

Initially, since no class has yet been certified in Echeverria II (and no class was ever certified in Echeverria I), no attorney-client relationship has yet arisen between Q&W and the members of the putative class. (Atari, Inc. v. Superior Court (1985) 166 Cal.App.3d 867, 873 [“We cannot accept the suggestion that a potential (but as yet unapproached) class member should be deemed 'a party . . . represented by counsel' even before the class is certified; we respectfully disagree to this extent with the federal courts which apparently would accept it.”]; Sharp v. Next Entertainment, Inc. (2008) 163 Cal.App.4th 410, 433, citing comment 25 to rule 1.7 of the ABA Model Rules of Professional Conduct [“When a lawyer represents or seeks to represent a class of plaintiffs or defendants in a class-action lawsuit, unnamed members of the class are ordinarily not considered to be clients of the lawyer for purposes of applying paragraph (a)(1) of this Rule [that restricts representation when there are concurrent conflicts of interest] . . .”]; In re McKesson HBOC, Inc. Securities Litigation (N.D.Cal. 2000) 126 F.Supp.2d 1239, 1245; Cal. Compendium on Prof. Responsibility, L.A. County Bar Assn. Formal Opn. No. 481 (March 20, 1995).)  

Foot Locker cites cases that clearly are inapposite to establish that an attorney may incur fiduciary obligations to an individual even though an attorney-client relationship has not arisen. Most involve situations where there were preliminary consultations between the individual and the attorney looking to the retention of the attorney but the potential client did not hire the attorney. (People ex rel. Dept. of Corporations v. Speedee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135; Beery v. State Bar (1987) 43 Cal.3d 802.) Closer to the mark is the court's statement in In re GMC Pick-up Truck Fuel Tank Prod. Liab. Litig. (3rd Cir. 1995) 55 F.3d 768, 801: “Beyond their ethical obligations to their clients, class attorneys, purporting to represent a class, also owe the entire class a fiduciary duty once the class complaint is filed.” This statement—which, it should be noted, recognizes that putative class members are not clients of the attorney—was made in the context of considering the propriety of certifying a settlement class, with little application to the present situation. Moreover, assuming that Q&W assumed some fiduciary obligations to members of the putative class they seek to represent, no authority has been cited suggesting that those obligations preclude the attorneys from urging that a proposed settlement in related litigation is not in the best interests of the class. (Compare Schick v. Berg (2004) U.S. Dist. LEXIS 6842, *19 (S.D.N.Y. 2004, affd. (2d Cir. 2005) 430 F.3d 112 [attorney owed putative class member a duty not to prejudice putative class member's rights in the action in which class certification was sought, but duty did not extend to refraining from advising a third party to sue putative class member].)

Slip op., at 5-6.  After reading these remarks, I now believe that it is unclear in California whether the majority approach follows or diverges from the federal cases suggesting a fiduciary obligation extends to putative class members prior to certification.  It seems likely, however, that regardless of the answer as to where California is on the issue, the obligations to the unknown putative class members do not rise to the same level as that of the obligations to a represented client.  The ability to harmonize this question is complicated by authority indicating that class counsel can replace a proposed class representative for the good of the class, which, in one way of looking at it, suggests that the interests of the putative class can rise high enough to squeeze the initial client to the sidelines.

December 28, 2010 edition of Daily Journal includes columns on class arbitration issues

In case you missed it (as did I, and I'm one of the authors), the December 28, 2010 edition of the Daily Journal includes columns on the interaction between arbitration and class actions.

California Supreme Court Justice Carlos Moreno to depart for private sector

California Supreme Court Justice Carlos Moreno, the only Democrat on the current Court, announced plans to step down from the Court after almost 10 years there.  February 28th will be his last day.  Governor Jerry Brown will appoint his successor.

Justice Moreno authored the majority opinion in Tobacco II.

The Complex Litigator will be on a vacation break for the next week

Having not taken a vacation in several years, it's about time for a week of R&R.  I may post if some sufficiently crazy news comes out, but I would get in trouble if I were posting on run-of-the-mill stuff (I'd get "stink eye" from soon-to-be six-year-old, and that would hurt too much).

Tell the Supreme Court not to ban all class actions until I am back.

California Supreme Court activity for weeks of December 27, 2010 and January 3, 2011

The California Supreme Court did not hold conferences for the weeks of December 27, 2010 and January 3, 2011.  Expect a long conference activity report next week...when I will be on vacation.

District Court (N.D. Cal.) denies motion for class certification in wage & hour suit against Crab Addison, Inc.

United States District Court Judge Phyllis J. Hamilton (Northern District of California) denied plaintiff's motion to certify a class action against the famous defendant, Crab Addison, Inc. (which was responsible for the state appellate decision regarding class member contact information).  Washington v. Joe's Crab Shack, 2010 WL 5396041 (N.D. Cal. Dec. 23, 2010).  The order suggests that the defendant opposed every aspect of certification, even challenging the adequacy of class counsel, which isn't a major issue in most certification motions:

Crab Addison also asserts that plaintiff's counsel are not adequate, claiming that they “neglected” the case and repeatedly missed critical deadlines. The court finds, however, that plaintiff's counsel are experienced in class actions, including employment-related class actions. The record submitted by Crab Addison does not support a finding that plaintiff's counsel do not satisfy the requirements of Rule 23(a)(4).

Slip op, at 8.  Instead, the Court focused on the predominance requisite, finding that individualized issues predominated.

District Court (N.D. Cal.) certifies class of consumers claiming Dell, Inc. misrepresented savings by stating false former prices

United States District Court Judge Ronald M. Whyte (Northern District of California) granted in part a motion to certify a class of citizens of California who on or after March 23, 2003, purchased via Dell's web site Dell-branded products advertised with a represented former sales price.  Brazil v. Dell, Inc., 2010 WL 5387831 (N.D. Cal. Dec. 21, 2010) [not to be confused with the Court's Order on a motion for judgment on the pleadings filed the same day].  The Court offered this interesting discussion concerning reliance:

In California, “a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material,” In re Tobacco II Cases, 466 Cal.4th 298, 397 (2009). Materiality is an objective standard, see U.S. v. Watkins, 278 F.3d 961, 967-68 (9th Cir.2002), and is susceptible to common proof in this case. There is no dispute that the alleged misrepresentations were communicated to all class members, because the representations were made at the point of sale as part of a standardized online purchasing process.

Plaintiffs point to common evidence sufficient to show that the representations were material to plaintiffs. Although Dell points to some testimony from plaintiffs that it says “fails to establish legally sufficient reliance for even their individual claims,” the court finds that testimony read in context sufficiently indicated that the plaintiffs relied. There is evidence that Dell considered the representations material, and that external reference prices and semantic clues impact customers' perceptions of value and purchase decisions. Dell's marketing expert contends that while some purchasers may attach importance to a discount off Dell's list price, others will base their decision on wholly unrelated factors. But under California law, plaintiffs need not establish that each and every class member based his or her decision on the represented discounts. Plaintiffs' common evidence that the representations were material satisfies California's reliance presumption and Rule 23(b) (3)'s predominance requirement.

Slip op., at 5.

A similar practice by Dell almost caught me about a year ago.  I ordered a computer on the basis of a claim that I was receiving a special, limited-time discount.  I then discovered through another source that the prevailing price at the time was lower.  I cancelled the order before it shipped and re-ordered at a significantly lower price.  I'm pretty happy with Dell computers from a hardware standpoint, but their sales tactics have some room for improvement.

District Court (E.D. Cal.) certifies a collective action of grape farm workers

United States District Court Judge Lawrence J. O'Neill (Eastern District of California) granted a motion to certify a collective action of grape farm workers pursuant to he Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 210 et seq.  Gomez v. H & R Gunlund Ranches, Inc., 2010 WL 5232973 (E.D.Cal. Dec 16, 2010).  The Court applied the more common two-stage certification approach used in FLSA actions.  The Court rejected the defendant's argument that the plaintiffs were obligated to provide evidence that other would opt-in if given the opportunity to do so.  The Court then issued instructions on required revisions to the proposed notice, including removal of all references to state law claims.  The Court refused to grant the defendant's request to limit the plaintiffs' ability to communicate with opt-in Plaintiffs.  The Court also refused to preclude additional notice through Spanish language media, noting that maximizing notice was beneficial and rejecting the argument that such media, often used in class actions, would somehow constitute a violation of professional responsibility rules.

Inability to pay arbitration costs is not a valid basis to lift a litigation stay imposed pursuant to 1281.4

I decree that anything having to do with franchises or arbitration agreements is generally complex.  Thus, a franchise law case in which arbitration issues are at issue is guaranteed to be complex litigation.  That said, this next case is easy to summarize.  In MKJA, Inc. v. 123 Fit Franchising, LLC (January 4, 2011), the Court of Appeal (Fourth Appellate District, Division One) considered whther a trial court properly lifted a stay of litigation that had been imposed pursuant to section 1281.4, on the ground that the plaintiffs could not afford to pay the costs associated with arbitration.

The plaintiffs sued for violation of the California Franchise Investment Law (Corp. Code, § 3100 et seq.), breach of contract, unfair business practices (Bus. & Prof. Code, § 17200 et seq.), and fraudulent inducement.  The defendant filed a motion to stay pursuant to Code of Civll Procedure § 1281.4 on the ground that it had filed a petition in Colorado to compel arbitration of the disputes.  The Court did note that section 1281.4 contained language that had not been interpreted by any California Court:

We assume, for purposes of this decision, that a trial court possesses some amount of discretion to lift a stay imposed pursuant to section 1281.4, prior to the completion of an ordered arbitration. However, the statute does not address the scope of that discretion. Based on the purpose of section 1281.4 as stated by the Federal Ins. Co. court and the context in which the operative statutory language appears, we conclude that a trial court may not lift a stay of litigation merely because a party cannot afford the costs associated with arbitration.

Slip op., at 20.

Wal-Mart Stores v. Dukes set for oral argument before Supreme Court

The Unites States Supreme Court moves right along once it grants a writ of certiorari.  Wal-Mart Stores v. Dukes has been set for oral argument on Tuesday, March 29, 2011.  We won't have to wait that long before (potentially) receiving some guidance from the current Supreme Court about class action standards.  The only uncertainty is whether the Court will limit its analysis to sex discrimination cases or offer more widely applicable guidelines.

Thanks to SCOTUSblog for the argument schedule.